Simplified Mechanisms with Applications to Sponsored Search and Package Auctions

Paul Milgrom

No 07-008, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: A simplified mechanism is a direct mechanism modified by restricting the set of reports or bids. An example is the auction used to place ads on Internet search pages, in which each advertiser bids a single price to determine the allocation of eight or more ad positions on a page. If a simplified mechanism satisfies the “best-reply-closure” property, then all Nash equilibria of the simplified mechanism are also equilibria of the original direct mechanism. For search advertising auctions, suitable simplifications eliminate inefficient, low-revenue equilibria that are favored in the original direct mechanism when bidding costs are positive.

Keywords: simplified mechanisms; sponsored search; generalized second price auctions; package auctions; combinatorial auctions; core-selecting auctions; mechanism design (search for similar items in EconPapers)
JEL-codes: C78 D44 (search for similar items in EconPapers)
Date: 2007-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Simplified Mechanisms with Applications to Sponsored Search and Package Auctions (2007)
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